Spain pins hopes of economic recovery on food and drink exports

Fruit and vegetables growers in Spain are under increasing pressure from European retailers to cut prices. Photograph Sarah Lee for the Guardian

The low lying flatlands around Valencia are still given over to growing paella rice. More than one hundred years ago, Britain was importing the staple from local co-operatives along with onions and garlic to recreate the dish that in its modern chorizo and seafood form dates back to the early 19th century.

These days water shortages mean rice is almost a local novelty. Growing fruit and salad vegetables make up the bulk of food exports as the hills that surround Spain's third largest city provide the perfect environment for oranges, clementines, lemons and other citrus fruits.

Cooperatives are the backbone of a key industry the new right wing government of Mariano Rajoy hopes will generate bigger export receipts and keep the country afloat.

Rajoy has his work cut out. For the past five years Spanish food and drink exports have been static. Before the credit crunch exports were nudging higher, but without much impetus. A slump in 2009 was followed by a slow recovery that puts the figures for sales in 2011 only slightly ahead of the peak in 2008.

The sluggish recovery of this key industry is one reason Rajoy is ready to battle the EU commission over plans for punitive fines for missing debt targets. He knows it will take time to push exports to new peaks against the headwinds of financial austerity and cheap foreign competition.

Without the subsidies that propped up Spanish agriculture in the 1990s, it faces an uphill struggle, one made worse by the intense burdens of doing business in modern euroland.

According to José Climent, the head of Spain's Cooperativa Agrícola, the country's largest co-op, the pressure from retailers in northern Europe to supply all year round produce, cut costs and adhere to ever-tighter environmental regulations is crushing co-ops more than the banking crisis.

Climent says co-ops are too weak to comply with all the demands from the big chains after years of under investment, though he is doing his best to fight back.

It is the bigger industrial concerns that can meet the needs of cost conscious and environmentally-aware consumers. Guy Dixon, commercial director of the family-controlled, private grower MartinAvarro, agrees that his firm, which has extensive citrus farms near Valencia and across the south of Spain, is better placed than the co-ops as supermarkets make ever-more stringent demands on quality, price and pesticide use.

MartinAvarro has long established relationships with Marks & Spencer, Waitrose and all the other major chains to supply citrus fruits. When Valencia fruit is exhausted, the company turns to its other Spanish farms to stretch the growing season.

Driving out of Valencia past its clementine and lemon groves, it is possible to see the neglect suffered by family-owned plots that make up the region's co-operative membership. Fifteen or 20 trees on a plot no bigger than a tennis court, overgrown with weeds, often augmented by a rusty piece of machinery, is a common sight.

Climent believes there is almost a conspiracy against farmers with smallholdings, even when they club together in co-operatives. He exports to Morrisons, Tesco and Sainsbury in the UK, but reserves most of his vitriol for the German chemicals giant Bayer, which he accuses of lobbying Brussels for more environment-friendly pesticides which are weaker and must be used more often at greater cost to the grower.

Climent's member-farms are also under pressure to improve the shape and colour of fruits for the supermarkets while keeping the price low. On this topic, he has another German company in his sights.

"The price of citrus fruits in Europe depends on the price decided by the chief buyer for Aldi. He sets the benchmark. But he is making 300% to 400% mark-ups on the price he pays us. And he helps Bayer because it will only accept fruit with pesticide residues that are a third of the EU level. Aldi is the strictest in Europe," he says.

Last month, Valencian citrus farmers protested outside the city's largest Aldi and Lidl shops after the German supermarkets were accused of pushing down prices further.

Martinavarro, on the other hand, has invested heavily in the latest varieties and irrigation techniques to keep up with environmental rules and the demands of northern European customers Last year he planted an Australian variety of the local Navel orange with a better taste and faster growing time. But the investment will not pay off for at least five years when it goes on the market.

That ability to focus on service and invest has allowed his operation to move ahead of Climent's after an increase in annual production to 230,000 tonnes of citrus. The co-op's main processing plant sometimes struggles to maintain the 120,000 tonnes it needs to remain viable.

In Madrid, Rajoy is preparing to sanction tax relief for smaller businesses to break with a past that is characterised by tightly-run family businesses, unwilling to innovate. He wants business people to be rewarded for working harder with fewer barriers to taking on staff and generating profits.

Climent says he remains hopeful the co-op's fortunes will change. There are plans to upgrade the main processing plant and support more farmers to improve the quality of their fruit and their yields. But his tone is gloomy.

"The private companies have different locations and sign all-year round deals that maintain a constant supply. We can't match that. And we struggle to compete with suppliers in north Africa. We must use labour that has full employment rights compared with Morocco where packers are paid €0.85 an hour compared with our €11 an hour." And, adding insult to injury, they are not affected by EU environment regulations and can use two or three times as much pesticide.

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